Net Operating Income (NOI)

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The below topics are discussed in much more depth
on our members' Net Operating Income page.

A property's NOI is a necessary part of almost any formula used to determine the value of investment property so it must be as close to a real number as possible. The present value of well maintained income producing real estate is always some multiple of it's Net Operating Income. For example: if the present value of investment capital is 10%, a property with an NOI of $6,820 might be worth about $68,820 to a new investor.

      NOI is determined by subtracting all operating expenses from gross rents. Professional investors and appraisers usually use an APOD form (Annual Property Operating Data) to determine NOI.
      Sellers and their agents, typically arrive at the advertised NOI by using gross scheduled rents and ignoring deductions for such things as uncollected rent, vacancies, redecorating, adjustments for deferred maintenance and management costs.
      Operating expenses must include almost all of the costs of owning, managing and maintaining a property, except depreciation and debt service (principal and interest payments).  They are generally broken down into the following seven categories:

Vacancy and Collection Losses
Capital Reserves
Property Management
Maintenance
Utilities
Taxes
Insurance

The above topics are discussed in much more depth
on our members' Net Operating Income page.

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